Texas Pacific Land Corporation Third Quarter 2026 Earnings Conference Call - TEXAS PACIFIC LAND CORP

Explicit Guidance:

• No specific numerical financial guidance (revenue, EPS, margins, capex, or FCF ranges) was provided for fiscal 2027 or future quarters.
• Management indicated that 2027 is "increasingly certain" to be another "record production year" for the Permian, following 2026 record highs.
• Capital allocation for next year ("next year" refers to 2027) includes planned spending on "water-related distribution and treatment infrastructure" to serve the initial in-service of power and data center projects.
• Potential for opportunistic share buybacks is noted, contingent on market volatility and energy/data center sector impacts in Texas.

Business-Segment Outlook:

• Oil & Gas Royalties: Expect near-term Permian basin growth to strengthen due to inflection in rig counts (rising in Q3, expected to continue through year-end) and record new horizontal well permits; 2027 production outlook remains positive despite current "duck" (drilled but uncompleted) inventory drawdown.
• Water Business (Legacy & Royalties): Q4 completion water sales outlook is "much more robust" than Q3; Permian activity shift to Midland Basin and New Mexico is ongoing, requiring expanded reach and third-party disposal leverage; produced water royalty volumes are expected to continue growing due to rising water-to-oil ratios and natural hedge dynamics from recycling-to-injection shifts.
• Water Business (Desalination/Reuse): OILA Phase 2b facility commissioning is underway; target to begin flowing "field-produced water" into the facility by the end of the current year (2026); TPDES final draft permit expected "shortly."
• SLIM (Surface Leases, Easements, Materials): Anticipate continued growth in West Texas driven by industrial, manufacturing, power, and data center infrastructure; investing in additional surface opportunities to capture this industrial boom.
• Data Center & Power: Backlog described as "robust" with "very high" inbound RFPs; multiple hyperscale projects expected to come online in the "near term" despite commercial agreement negotiations; projects anticipated to be "behind the meter" and in rural areas to mitigate grid interconnection complexity.

Market and Competitive Outlook:

• Permian Dynamics: Expect prolonged periods of negative gas pricing and wide basis differentials to be "behind us" following the expansion of new natural gas pipeline capacity; Waha Hub prices have already compressed to Gulf Coast differentials.
• Commodity Prices: Remain "unhedged," fully exposed to elevated oil prices driven by Middle East conflict; sustained high prices incentivize operators to replenish "duck" inventory and accelerate spudding.
• Data Center Competition/Positioning: West Texas positioned as the "blueprint" for data centers due to cheap power, abundant brackish water, and community acceptance; hyperscalers focused on minimizing environmental externalities, potentially favoring TPL's specific land and water assets.
• Geographic Shifts: Observed intra-basin shift from Delaware to Midland and from Texas to New Mexico in the Delaware; expecting future pivots back to Delaware to be handled via new out-of-basin capacity and desalination frameworks.

Macro / Industry Outlook:

• Regulatory/Political: New Texas governor and ERCOT verification/audit for grid-connected projects have paused new data center permits; management anticipates the new administration will take a "measured approach" similar to the outgoing governor, viewing this as a net long-term positive for West Texas due to stricter site selection criteria (cheap power, non-potable water) that favor their specific assets.
• Economy: Broad view that the Permian "oil machine" is "not even close to slowing down"; high oil prices continue to support upstream activity despite operator caution earlier in 2026.
• Industry Trends: Structural shift toward beneficial reuse and desalination for produced water; hyperscalers demanding non-potable, potable, and demineralized water with strict environmental specifications.

Strategic Initiatives:

• OILA Facility Expansion: Progress on "data center and power generation-specific" R&D for co-location of desalination facilities; commissioning includes calibrating equipment and developing SOPs for higher brine concentrations.
• Acreage Growth: Recent acquisition of ~9,700 surface acres and 238 net royalty acres in Midland/Glasscock counties (completed post-quarter) to augment Midland Basin footprint and generate cash flow from source, SLIM, and mineral interests.
• Infrastructure Investment: Commitment to spend 2027 capital on water distribution and treatment infrastructure to enable initial data center/power project in-services; designing facilities to address local concerns (municipal water usage, traffic, noise) to serve as an industry blueprint.
• M&A/Returns: Maintaining flexibility to pursue M&A and organic investment; capability to "lean into buybacks" given recent market volatility.

Risks and Headwinds to Outlook:

• Regulatory Delays: New political landscape and regulatory moratoriums on data center permits in Texas may cause short-term permitting headwinds and delay project timelines.
• Activity Shifts: Slower-than-expected ramp in Permian completion activity could temporarily depress water sales volumes (though seen as constructive for royalties via injection requirements).
• Operational Complexity: Data center projects involve complex, lengthy negotiations regarding community benefits, environmental externalities, and affordability, extending the timeline to commercial agreement finalization.
• Market Volatility: Perceived impacts of the Texas election on energy and data center sectors are driving stock volatility, potentially influencing M&A and buyback timing.

Management Tone on the Future:

• Confidence: High confidence in the long-term value proposition of West Texas for compute and power; management described the Permian outlook as "constructive" and explicitly stated the basin is "not even close to slowing down."
• Strategic Optimism: Management views recent political changes in Texas as a "net positive" for long-term value, reinforcing the thesis that West Texas attributes (cheap power, water) will force compute to the region.
• Cautious Pragmatism: Acknowledges short-term permitting challenges and the need to navigate new regulatory environments but maintains that existing diligence and site design pre-date current political shifts.

Miscellaneous:

• Well Inventory Dynamics: "Duck" (drilled uncompleted) and "cup" (completed unproduced) inventories are being drawn down by high oil prices; inventory replenishment expected to accelerate in Q4 and 2027 as rig counts rise.
• Balance Sheet Strength: Company maintains $0 debt and $370M in cash (as of quarter-end), with a pristine balance sheet post-acquisition.
• Water Sales Volume Specifics: Produced water royalties reached a record 5.5 million barrels/day (14% sequential growth, 27% YoY); legacy water sales were 672,000 barrels/day (flat sequentially).